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News That Matters

Mon, Aug 29, 2011

Economy and News


European officials rounded on Christine Lagarde on Sunday, accusing the managing director of the International Monetary Fund of making a “confused” and “misguided” attack on the health of Europe’s banks. Ms Lagarde, the former French finance minister who replaced Dominique Strauss-Kahn as head of the IMF in July, used her address at an annual meeting of central bankers in Jackson Hole, Wyoming, to call for an “urgent” recapitalisation of Europe’s weakest lenders, saying that shoring up the banking system was key to cutting “chains of contagion” across the region.

German “bad bank” agencies holding billions of euros of Greek debt have still to decide whether to join a bond swap designed to cut Athens’ refinancing burden as part of an EU bail-out. Two ofthe German banks that are among the country’s largest holders of Greek bonds have also to commit themselves to the €135bn debt swap plan set to be launched next month. The uncertainty over which institutions will support the deal comes as Greece is warning that the swap might not go ahead if fewer than 90 per cent of private investors agree to participate.

Anna Hazare, the Indian anti-corruption campaigner, ended his public hunger strike on Sunday after a rattled Congress party-led government bowed to his demands for tougher laws. The 74-year-old social activist broke his 13-day fast with a cup of coconut water at the Ramlila Ground in central Delhi sitting on a dais surrounded by children and dwarfed by a giant poster of Mahatma Gandhi, the Indian liberation leader whose example Mr Hazare invokes.

Solid first-half profits at China’s state-owned oil companies have paved the way for further expansion overseas as the country’s oil needs continue to rise. Sinopec, the world’s second-largest oil refiner, said on Sunday it intended to raise up to Rmb50bn ($ 7.8bn) through the sale of bonds and convertible bonds to fund projects, boost working capital and pay debts. The instruments will be issued or placed with existing shareholders, Sinopec said. The fundraising plan accompanied the company’s announcement of a 12 per cent rise in net profit, to Rmb41bn, in the first half of the year, beating analysts’ expectations.

Food price inflation looks set to continue as a threat into 2012 as expectations for the US corn harvest, the world’s largest, are being lowered by the week. Analysts and trading executives are cutting estimates of how many bushels each acre will grow as the effects of punishing heat last month result in smaller ears of corn. The private sector estimates are well below already disappointing official forecasts published earlier this month. The US accounts for half the world’s corn exports and the size of the crop has an outsize impact on global prices. Corn is also a critical feeding commodity, so a smaller crop would push prices higher, rapidly translating into more expensive beef, lamb, pork and poultry and thus, higher food inflation.

Consumers in the developed world are becoming increasingly apathetic about global warming, while Latin Americans – who have suffered much from unusual weather patterns – are  becoming more concerned, according to a survey. Nielsen’s global study of online consumers comes as scientists and politicians, among others, debate the role of global warming in the severity ofHurricane Irene, which lashed the American east coast over the weekend. According to the global data and information consultancy’s findings, the US recorded one of the steepest declines in concern about global warming: less than half of Americans polled fret about climate change and only 58 per cent of Brits.
Most Asian shares were higher Monday after Wall Street rose Friday as Federal Reserve Chairman Ben Bernanke’s closely watched speech at Jackson Hole was met with market approval, but the Tokyo market remained hobbled by a firm yen.  Japan’s Nikkei Stock Average was flat in choppy trade, Australia’s S&P/ASX 200 added 1.3%, South Korea’s Kospi Composite tacked on 1.8% and New Zealand’s NZX-50 was up 0.5%. Dow Jones Industrial Average futures were up 16 points in screen trade. 

The race for Japan’s next prime minister has come down to Japan’s trade and industry minister, backed by a powerful political patron, and the understated finance minister, whose impassioned last-minute plea for votes won him a slot in a runoff vote. Trade Minister Banri Kaieda emerged as the top vote-getter in the first round to select the new head of Japan’s ruling Democratic Party of Japan, and therefore next prime minister. But he failed to win an outright majority of the 398 lawmakers eligible to vote, forcing a second round of ballots later Monday afternoon against second-place vote-getting Finance Minister Yoshihiko Noda. The DPJ is voting to pick the successor to Prime Minister Naoto Kan, who stepped down as DPJ leader on Friday. The vote comes as the country faces a host of challenges, including reconstruction after the March 11 earthquake and tsunami and a historically high yen that threatens to undermine a recovery.

The People’s Bank of China will require banks to hold more types of deposits in reserve, effectively tightening credit conditions further, according to a memo from the central bank seen by Dow Jones Newswires. The central bank will require banks to include so-called “margin deposits,” or collateral deposited by customers for letters of credit and other guarantees, in calculating the proportion of deposits that they must put aside for the required reserve ratio, according to the memo circulated within a major domestic bank.

Tallying how much Hurricane Irene will cost the U.S. economy in terms of everything from smashed rooftops to lost Broadway ticket sales will take time, but it’s already clear it will be less than many estimated. The storm swept up the East Coast over the weekend, causing heavy flooding and killing at least 19 people. But damage appears to be less extensive than some analysts had predicted possible from such a large storm.

After four years of fighting crises and pumping money into the financial system, the world’s central bankers are concluding that the global economy is still in a precarious position and the policy apparatus is ill-equipped to help. The mood here in the Grand Tetons, where central bankers and private economists from around the world gather each August, was distinctly gloomy. Some economists, among them Harvard University’s Kenneth Rogoff, say today’s painfully slow economic growth is the inevitable result of the massive head winds that follow a recession caused by a banking and financial crisis. Government policies, given already heavy burdens of debt on governments in the U.S., Europe and Japan, can’t overcome the relentless efforts of households and banks to reduce their debt loads.

“Delay and pray” is not a viable fix for the household sector’s woes. Indeed, it may only be making things worse. In a marked shift from their borrow-and-spend behavior during the boom, U.S. households are now by and large prioritizing saving and debt reduction. On Monday, the Commerce Department is to release July figures likely to show the personal saving rate, or proportion of after-tax monthly income unspent, in the 5% to 5.5% range it has maintained for roughly the past 18 months.

Hurricane Irene menaced the Eastern seaboard, pounding tens of millions of Americans with wind, rain and floods—but largely sparing New York after an unprecedented shutdown of the largest U.S. city ahead of the massive storm. In New Jersey, the ocean surge and rainfall caused severe inland flooding. Gov. Chris Christie said damages there would total at least $ 1 billion and could reach “tens of billions of dollars.” Virginia’s governor called the blackout in his state its second-largest ever and warned that electricity might not be restored for a week.

Private-equity shop Lone Star Funds and banks Wells Fargo & Co. and J.P. Morgan Chase & Co. are the winning bidders for Anglo Irish Bank Corp.’s hotly contested portfolio of U.S. commercial real-estate loans, according to people familiar with the matter. With a face value of around $ 9.5 billion, the Anglo Irish portfolio was one of the largest pools of commercial-property loans to hit the market since the downturn. The package offered debt related to some 250 properties, including marquee names ranging from the Apthorp, a landmark Manhattan residential building, to a Beverly Hills, Calif., shopping center to the Palmer House Hilton in Chicago.

Developed nations from Japan to America are desperate for growth, but this tiny lake-filled Swiss canton is wrestling with a different problem: too much of it. Zug’s history of rock-bottom tax rates, for individuals and corporations alike, has brought it an A-list of multinational businesses. Luxury shops abound, government coffers are flush, and there are so many jobs that employers sometimes have a hard time finding people to fill them.

Two of Greece’s leading lenders, EFG Eurobank Ergasias SA and Alpha Bank SA, are expected to announce on Monday a tie-up to create the country’s largest banking company and one of the biggest in southeastern Europe, three people familiar with the deal said Saturday. “We are expecting an announcement Monday,” one person said. “This will be a friendly merger, with a view to creating an anchor bank for both Greece and southeast Europe and which will be one of the 25 largest banks in the euro zone.” The combined entity will have about €150 billion ($ 217 billion) in total assets—bigger than the current market leader National Bank of Greece SA—and about €80 billion in deposits.
Last month’s 117,000 expansion in nonfarm payrolls wasn’t even strong enough to meet population growth — and the August report may even be worse. Economists polled by MarketWatch are expecting the Labor Department on Friday to report just 46,000 jobs outside of the farm sector created during the month. If the consensus is anywhere near being correct, it would extend to four months a run of paltry job creation. And it’s this backdrop that is prompting President Barack Obama to deliver a major speech on Sept. 5 that in part will outline new initiatives to revive the flagging labor market.

Economic conditions are not at the point now where the Federal Reserve should ease monetary policy further, James Bullard, the president of the St. Louis Fed, told MarketWatch in an interview. on Saturday. Bullard said he was not convinced that the economy would suffer in coming quarters, as many leading economists are predicting. “I think there are good reasons to be optimistic even though when you look around these days there is a lot of gloom and doom,” Bullard said.
Spot gold fell more than 1 percent on Monday, reversing a 3.2-percent rally in the previous session, as investors faced with uncertainties on the U.S. Federal Reserve’s stimulus plans decided to take some money off the table. Cash gold fell as much as 1.2 percent to $ 1,806.29 an ounce, before recovering slightly to $ 1,815.59 by 0249 GMT. Prices lost more than 1 percent last week, snapping seven straight weeks of gains. U.S. gold gained 1.2 percent to $ 1,819.

Brent crude fell below $ 111 on Monday as oil refiners and terminals along the U.S. east coast weathered the worst of a tropical storm, easing fears of fuel supply disruptions in the world’s top oil consumer. Brent crude was down 71 cents at $ 110.65 a barrel as of 0227 GMT, posting its first fall in a week, and steepest since August 18. U.S. crude slipped 8 cents to $ 85.29, swinging between a high of $ 85.72 and $ 85.11.

Ben Bernanke did not prescribe a new dose of medicine for the ailing U.S. economy at this year’s central bank confab amid Wyoming’s Teton mountains, but he didn’t give it a clean bill of health, either. That should be a reminder for investors — if any needed one — that the U.S. economy remains fragile and will likely rivet attention on economic data due in the coming week, topped by the monthly jobs report. Such worries may add up to more volatility for the stock market, particularly if the week ends with data showing the pace of U.S. hiring slowed and the jobless rate, which exceeds 9 percent, increased.
Vietnam  ordered lenders to set aside more dollars as reserves for the third time this year, aiming to steady the national currency and quell Asia’s fastest inflation. The reserve-requirement ratio on U.S. dollar deposits will rise to a range of 5 percent to 8 percent from 4 percent to 7 percent, effective September, the State Bank of Vietnam said on its website today without specifying an exact date.

The dollar is poised for its biggest monthly gain since May, reclaiming its status as a haven while Switzerland and Japan boost efforts to weaken their currencies. The greenback has appreciated 1.2 percent in August against a basket of the developed world’s nine most-traded exchange rates, according to data compiled by Bloomberg. That compares with a decline of 14 percent in the world’s reserve currency from this time last year through July. Demand for U.S. assets is rising even though the Federal Reserve has pledged to keep its benchmark interest rate near zero through mid-2013 and Standard & Poor’s cut the nation’s credit rating from AAA. The two other currencies considered havens in times of financial and political strife — the Swiss franc and yen — are under siege by their governments and central banks after strengthening to records.

Central bankers gathered at an annual retreat in Jackson Hole, Wyoming, this weekend had a message for political leaders: monetary policy alone can’t keep the global expansion going. Federal Reserve Chairman Ben S. Bernanke urged adoption of “good, proactive housing policies” to reverse the depressed U.S. real estate market and warned lawmakers to avoid steps that may hurt short-term growth. Ewald Nowotny of the European Central Bank Governing Council said euro-area governments should expand the powers of their regional bailout fund.

Bond investors are backing Federal Reserve Chairman Ben S. Bernanke’s forecast that the U.S. will avoid another recession. The economy has never contracted with the difference between 10- and 30-year Treasury yields as wide as the current 1.34 percentage points, or 134 basis points, since the so-called long bond was first issued in 1977. The gap, which is more than double the 49 basis-point average of the past 20 years, has ranged from negative 56 to positive 41.9 at the start of the last five recessions, beginning in January 1980.

South Korean Finance Minister Bahk Jae Wan indicated that the government may cut its growth forecast for this year amid signs of a global slowdown. “I see downside risks growing and so we may have to revise our growth forecast,” Bahk told reporters after a speech at a local forum inSeoul today. “We maintain our 4.5 percent estimate for now.” He cited the threat from weaker expansions in major economies.
Singapore’s economy could get a shock if the U.S. falls into recession, warned both ratings agency Fitch and investment bank, Daiwa Capital Markets. According to a Fitch report released Friday, if there is a recession in the U.S., Singapore “would experience the largest cumulative negative shock to GDP of 4.1 percentage points from 2011 to 2013.” This is because Singapore’s trade with the U.S. accounts for about 20 percent of its GDP – the largest exposure among emerging Asian economies.

Following weeks of heavy losses for banking stocks across Europe, the Sunday Times in the UK reported Sunday that European officials are working on a “radical plan” to prevent a fresh pan-European credit crunch. Without citing sources, the paper said officials from the European Central Bank and European Commission are considering offering central guarantees over certain types of debt issued by banks.

In Jackson Hole, Wyoming, on Saturday, Jean-Claude Trichet, the president of the European Central Bank, was due to give a speech to a meeting of policy makers hosted by the Federal Reserve. As he prepared to speak, the euro zone faced huge problems. So as Trichet prepared for his speech, he turned to the history books and gave a master class on how to say something while actually saying nothing at all.
“There is good reason to hope that the crisis is over in two to three years’ time,” European Financial Stability Facility (EFSF) chief Klaus Regling said, according to a preview of the weekly German magazine. But this depended on member states continuing to implement reforms aimed at sorting out their budgets, he said. Regling dismissed the idea that the euro zone could break apart. Both weaker and stronger countries had a collective interest in seeing it survive, he said.
Short sales are increasing as a percentage of home sales in many states, helping some neighborhoods and homeowners avoid the more devastating impacts of foreclosures. Short sales —when lenders allow financially strapped borrowers to sell homes for less than their unpaid mortgage — accounted for 12% of home sales nationwide in the second quarter. That’s up from 10% in the same period last year, says researcher RealtyTrac. The increases were sharper in some states, including California, Nevada, Michigan, Georgia and Colorado, the data show. In Colorado, short sales were 17% of all sales in the second quarter, up from 10% a year earlier. In California, they made up 25% of sales, vs. 18%.
While the Dow Jones industrial average and the unemployment rate get more attention, the shoppers outside a Wal-Mart in Northern Virginia offered a taste of what some economists believe is the more immediate reason that the U.S. economy may be on the verge of another recession. Americans are still spooked. More than two years after the recession’s official end, people are driving their cars a year longer, holding back on jewelry and furniture, and swapping brand names for cheaper store brands at the supermarket. More ominously, the once sturdy optimism of Americans appears to have crumbled, according to one key measure. Breaking from precedent, Americans no longer believe they will make more money next year than this year, according to the University of Michigan’s Surveys of Consumers. These expectations used to rebound after recessions; this time they didn’t.
German Chancellor Angela Merkel no longer has enough coalition votes in the Bundestag to secure backing for Europe’s revamped rescue machinery, threatening a consitutional crisis in Germany and a fresh eruption of the euro debt saga. Mrs Merkel has cancelled a high-profile trip to Russia on September 7, the crucial day when the package goes to the Bundestag and the country’s constitutional court rules on the legality of the EU’s bail-out machinery.

Record profits at Foxtons saw the London estate agent seal its “best ever” year despite uncertainty over the economy, its 2010 accounts show. Foxtons – known for its branded Minis, trendy offices and confident sales patter – also pocketed £3m from an unnamed adviser in April after settling a claim for “inadequate advice”. The company’s founder Jon Hunt, who sold the agency for £375m at the height of the property boom in 2007 to BC Partners, the private equity group, collected around £1.2m of the settlement.

The number of Britons forced to delay retirement into their late 60s and beyond has doubled over the past year as the rising cost of living hits home, a major study has revealed. Worryingly, one in seven over-65s say they still do not know when they plan to retire, while a third of those aged between 45 and 64 are unsure about when they can stop working, the research found. Squeezed householders have been left with little choice but to tear up their plans for retiring at 65 or earlier, the analysis said.

The proportion of our income going on mortgage payments is at its lowest level for 12 years.The typical mortgage payments for a new borrower both first-time buyers and home movers – at the historic average loan to value ratio stood at 28pc in the second quarter of 2011: according to research by Halifax, this is the lowest level since 1999 and down by almost half from a peak of 48pc of average disposable earnings in late 2007. There has also been a modest decline over the past year from 30pc in 2010, reducing mortgage payments relative to earnings further below the average of 37pc recorded over the past 27 years.
The president of the European Central Bank, Jean-Claude Trichet, used one of the last major speeches of his tenure as a rejoinder to American traders and economists predicting the break-up of the eurozone. Side-stepping more pressing issues of how the ECB is responding to the continent’s sovereign debt crisis, Mr Trichet told fellow central bankers in Jackson Hole, Wyoming, that the US, too, was a regionally diverse economy held together under a single currency.
House prices in England and Wales ticked down on the month in August and weak consumer spending is likely to weigh on demand and prices for the rest of the year, property data firm Hometrack said on Monday. House prices fell 0.1 percent on the month in August, leaving them 3.7 per cent below the August 2010 level, Hometrack said. “Weak consumer sentiment, pressure on household incomes and the uncertain economic outlook are likely to see demand weaken further over the remainder of the year,” it said.
Since the beginning of 2011, China has taken a series of measures to cool rising prices, such as introducing a prudent monetary policy, boosting supply and containing inrrational demand while establishing a price control mechanism. However, it will be quite difficult to meet the government’s annual inflation rate control target, which is around 4 percent for the year. Zhang Ping, the head of the National Development and Reform Commission (NDRC), China’s top economic planner, called for all macro control policies in force to be fully implemented, as “it could be difficult to keep the consumer price index (CPI) growth below the government’s target this year.”

South Korean Finance Minister said on Monday that it could cut economic growth outlook for this year, citing heightened external uncertainties. “The government now sticks to the current economic outlook for this year, but I think the accurate forecast could be taken again later. Overall, there are downside risks on economic growth,” Minister Bahk Jae-wan said in a forum held in central Seoul. His remarks came after the finance ministry revised down its economic growth outlook for this year to 4.5 percent from the prior 5 percent in June 30 when it announced its plan for the second-half economic policy management.

South Korea’s current account surplus widened to a nine-month high in July due to brisk exports and heavy foreign buying of local securities, the central bank said Monday.  The surplus reached 4.94 billion U.S. dollars in July, up from a revised 2.03 billion dollars tallied for the previous month, the Bank of Korea (BOK) said in a statement.  For the first seven months of this year, the accumulative surplus amounted to a combined 13.04 billion dollars. The July figure was the largest since Oct. 2010 when it recorded a 5.11 billion dollars surplus, and the current account balance has remained in the black for the 17th consecutive month in July.
The Russian Ministry of Economic Development expects Russia’s 2011 GDP to grow by 4.1 percent, lower than a previous forecast of 4.2 percent, Deputy Minister of Economic Development Andrei Klepach told reporters on Saturday. Klepach explained the revise was based on the weak data in the first half of this year, as the GDP growth in the first six months only reached 3.7 percent. “If you try to anticipate the yearly figure by extrapolating from this one (3.7 percent), we will have a 3.8-3.9 percent growth by the end of the year,” Klepach said. “But we still presume that there is potential for growth to be tapped in the second half of this year, and the first half’s figures could be recalculated as well,” he added.

German Finance Minister Wolfgang Schaeuble said Saturday that the world risks a 7-year recession due to slowdown and debt troubles in America, Europe and Japan, urging debt-ridden countries resort to drastic austerity.  It still needs time for eurozone countries to harvest fruits for their economic and financial reforms. Along with shadows of slowdown and debt crisis in major economies, the world economy may witness “seven lean years,” Schaeuble said in a closing speech for the 4th Lindau Nobel Laureate Meeting for Economic Sciences held from Aug. 23 to 27. Organizers held on Saturday the last round of discussion at St. Gallen University in Switzerland, one of most famous university in Europe for economic studies.
The growth rate in rural markets has slipped below urban areas in the $ 30-billion packagedconsumer goods sector for the first time in three years, though both markets are growing at a fair clip. Marketers largely pointed to possible downtrading among rural consumers as value growth of categories such as shampoo, hair-oil and toothpaste in urban areas outpaced rural growth during April-July, triggering fears of a slowdown in demand if high inflation persists.
Russia for the first time is selling weapons to Bahrain after Britain and France banned deliveries of security equipment to the Gulf monarchy because of its crackdown on protesters. State arms traderRosoboronexport says it wants more business in Bahrain. The country is selling AK-103 Kalashnikovs with grenade launchers and ammunition for tens of millions of dollars to Bahrain, according to a person close to the Russian Defense Ministry who declined to be identified because the information is not public. In February, France and Britain revoked export licenses for security equipment that could be used to quash internal unrest in Bahrain after government forces shot dead several protesters. At least 30 people were killed in this year’s uprising in Bahrain, a U.S. ally situated between Qatar and Saudi Arabia that is home to the U.S. Navy’s Fifth Fleet.

6 Responses to “News That Matters”

  1. Becky Says:
    August 31st, 2011 at 7:43 am

    “Surprisingly strong US consumer spending
    heartened markets”

    And our good friend Ambrose talked the other day about “health” returning to the US economy.
    I suppose that when a man with a persistent habit of spending vastly in excess of his income has persuaded someone to lend him more money, he can continue to go to the shops to buy more fine clothes and a new car, and to dine out well and to maintain the appearance of prosperity.
    The fact remains that only 60% of American Federal expenditure is covered by tax revenues. The rest has to be borrowed.
    The American economy is as sick as a parrot.

  2. Denver Says:
    August 31st, 2011 at 7:48 am

    This is to be the biggest bank in SouthEast Europe (8 million customers, > Euros 100 B, 2000 branches in 8 countries). Qatar which is a big stockholder for one of them is investing some Euros 2.5 B. Greek stock market went up by 16%. If Greece defaults Argentina style (collapse of banks) will be major catastrophe. Too large to fail, it is a bit like having a nuclear weapon. This makes less likely an old style default of Greece and exit of Euro, so stockmarkets reflect that. Of course everything might be futile and global economy will go down the drain in the end whatever is done!

  3. Elyn Says:
    August 31st, 2011 at 7:50 am

    For want of a better term, they’re ‘rigged’. They’ll eventually return to where they were before the media-labelled ‘turmoil’. Traders, including High Frequency Trading boffins, know exactly what’s going on. The markets are detached and are making untold amounts of money for those mentioned and maybe not for long term investors or pensioners.

    There’s a freely available documentary on this detachment:

    Quants: The Alchemists of Wall Street

  4. Ivy Says:
    August 31st, 2011 at 7:59 am

    Go back behind the iron curtain where you belong. Oh wait it doesnt exist anymore get used to it. Socialism: running out of OTHER PEOPLES money. doesnt matter if this influx of money into the Eurozone is sustainable or not huh? Just because the US beat your kind in the cold war doesnt mean you should carry on your heated grudge comrade. Underestimate America at your peril.

  5. Janus Says:
    August 31st, 2011 at 8:00 am

    “The epicentre of financial trouble”,
    that sounds like the City.

    It is prostrate before the Independent Commission on Banking begging for the ICB to waive the rules and let them off the hook.

    Yes, the next couple of weeks are going to be crucial for the City.

  6. Ken Says:
    August 31st, 2011 at 8:02 am

    Every day we seem to lurch from optimism to pessimism as different economic stories foretell recovery then depression then back again. The economics commentators and market makers seem to be suffering from bipolar disorders.

    This must be one of the most volatile periods in history.


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